Question 1

Suppose the price of a luxury cruise falls by 20% during a fare war, and as a result, the quantity demanded increases by 40%. What is the price elasticity of demand for luxury cruises, using the midpoint method?

Accepted Answer

$\frac{40\%}{20\%} = 2$

Question 2

Which of the following goods is most likely to have an inelastic demand in the short run?

Accepted Answer

Insulin for diabetics

Question 3

If the price elasticity of demand for a product is $0.5$, what will happen to total revenue if the price increases?

Accepted Answer

Total revenue will increase

Question 4

A 10% increase in the price of cigarettes leads to a 2% decrease in quantity demanded after one year. What does this suggest about the price elasticity of demand for cigarettes in the short run?

Accepted Answer

Demand is inelastic

Question 5

Which of the following best explains why the demand for gasoline is more elastic in the long run than in the short run?

Accepted Answer

Consumers have more time to adjust their behavior, such as buying fuel-efficient cars or moving closer to work

Question 6

If the cross-price elasticity of demand between two goods is negative, what does this imply about the relationship between the goods?

Accepted Answer

They are complements

Question 7

A firm increases the price of its product from $12 to $14, and the quantity supplied increases from 150 to 170 units. Using the midpoint method, what is the price elasticity of supply?

Accepted Answer

$\frac{(170-150)/160}{(14-12)/13} = \frac{20/160}{2/13} = \frac{0.125}{0.1538} \approx 0.81$

Question 8

Which of the following scenarios would most likely result in a perfectly inelastic supply curve?

Accepted Answer

A fixed number of parking spots in a city

Question 9

If the income elasticity of demand for a good is negative, what type of good is it?

Accepted Answer

Inferior good

Question 10

Suppose the price of Cheerios rises by 20%, and the quantity demanded falls by 30%. What does this indicate about the price elasticity of demand for Cheerios?

Accepted Answer

Demand is elastic

Question 11

A government policy increases the number of federal agents fighting illegal drugs, shifting the supply curve left. If the demand for drugs is inelastic, what is the likely effect on drug-related crime?

Accepted Answer

Drug-related crime increases due to higher total revenue for drug sellers

Question 12

Which of the following is NOT a determinant of the price elasticity of demand?

Accepted Answer

The cost of production

Question 13

If the supply of wheat is elastic and the supply of parking spots is inelastic, and population growth causes demand for both to double, for which product will the price increase the most?

Accepted Answer

Parking spots

Question 14

Which formula correctly represents the price elasticity of demand using the midpoint method?

Accepted Answer

$\frac{(Q_2 - Q_1)/[(Q_2 + Q_1)/2]}{(P_2 - P_1)/[(P_2 + P_1)/2]}$

Question 15

If a good has a price elasticity of demand equal to infinity, what does its demand curve look like?

Accepted Answer

Horizontal

Question 16

Which of the following statements about total revenue and elasticity is correct?

Accepted Answer

If demand is elastic, an increase in price will decrease total revenue

Question 17

Which of the following would make the supply of a good more elastic?

Accepted Answer

Producers can easily expand production in response to price increases

Question 18

If the cross-price elasticity of demand between two goods is positive, what does this imply?

Accepted Answer

The goods are substitutes

Question 19

A 10% increase in income leads to a 15% increase in the quantity demanded of restaurant meals. What is the income elasticity of demand for restaurant meals?

Accepted Answer

$\frac{15\%}{10\%} = 1.5$

Question 20

Which of the following best describes a perfectly elastic supply curve?

Accepted Answer

Horizontal, with elasticity equal to infinity

Elasticity and Its Applications – Microeconomics Study Notes

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